Category Archives: Trust Administration

Dear Liza: My father recently died. My dad had a trust set up naming me as the trustee and my brother, sister, and I are to split my dad’s assets evenly. I have set up a trust account at his bank (B of A) and have funneled funds into that trust account from his other bank accounts. I mailed off claim forms to a few companies in regards to his stock and annuity assets. Met Life is saying that we need an “ESTATE” and it needs to list me as the executor of the estate. She said that an estate and a trust are two different things and they needed an estate not trust. What is she talking about? It sounds like you are doing a good job as Trustee. It also sounds like the annuity at Met Life may not have a named beneficiary, which would mean that is passes to your father’s estate (and not to the trust).

Here’s the overview: your father had certain assets in his trust. But he, like most people, also owned assets NOT held in the trust, most typically these are retirement accounts (like IRA’s and annuities) or life insurance policies which have named beneficiaries.

When a person dies, these assets go the named beneficiaries. But if a person didn’t name a beneficiary, or named a spouse who then died first and forgot to update the form, these assets then usually pass to a person’s estate (though that’s up to each company’s rules).

In California, where I practice, if that annuity is worth less than $150,000, there’s a simple way to get MetLife to transfer it to you, as Trustee of his trust using a Declaration allowed by the Probate Code. If that annuity is worth more than $150,000, though, you will either have to open a probate proceeding and be named as the executor and then work with MetLife to transfer the asset, or use a court Petition to transfer the asset to the trust via his Will (if it was what’s called a Pour-Over Will, which would be typical).

Each state has a similar threshold, called a Small Estates limit. To find out what your state’s limit is, visit Legal Consumer.com and go to the Inheritance Law Section, which I wrote. (Full disclosure). Enter your zip code and you can find out your state’s small estate limit.

The first step is to ask MetLife who the beneficiary of the policy is. Then, if your father didn’t name anyone, you should probably seek professional help to chart the next steps.

Dear Liza: I’m an executor of a trust and was added as co-trustee on the trust while my mom was alive. She is now at peace with dad. Can I now just distribute the funds per the trust without changing the trust first to an irrevocable trust and providing a new TIN to the credit union prior to the distribution? Sorry. That’s not going to work. Now that your mother is dead, the trust is already irrevocable and you can’t use her Social Security number to report income, that’s why you need to get a new tax identification number for the trust. But it’s handy to have. Here’s why.

From the date of her death to the date that you distribute all of the trust’s funds, any income earned by the trust must be reported under that new tax identification number. Now that the trust is irrevocable, you’ll also need to file a 1041 tax return if the trust earns more than $600 worth of income in a year. Also, you’ll need that tax identification number to open up a bank account in the name of trust, which you can use to consolidate the trust’s assets prior to distribution and to pay its expenses.

And if you are thinking that you will avoid all of this by instantly distributing the trust’s assets, don’t. You shouldn’t just immediately distribute all of the trust’s funds, please wait until you’re sure you’ve paid all of the expenses and taxes due first. If you do distribute all of the assets, and then find a trust liability that you didn’t know about before, you as Trustee, must either personally pay that liability or go back to the beneficiaries and try to get the money back.

To find out how to get an EIN, visit the Inheritance Law section of Legal Consumer.com, put in your zip code, and read the article that explains how to do it. (Full disclosure, I wrote that too).

Dear Liza: My parents both have recently passed away. They had a revocable trust. What type if tax ID do I need? I created one for the “Estate” type, but should I have made it for the “Trust” type? I am the trustee. Getting a new tax identification number for a trust that has become irrevocable due to the death of the settlor is a task every new Trustee has to face. The trust needs a new tax identification number to report income earned from the date of death of the settlor to the time when when the trust is distributed to the beneficiaries.

After the last settlor dies, you can’t use their Social Security Number any longer (because they’re dead), so you have to get a new tax id. It sounds like you went online to get the tax id from the IRS. You are right, you should have asked for the number to be set up for an irrevocable trust, not an estate. Don’t panic though, just follow the instructions here to correct that error.

For more information on how to deal with taxes and other trust administrative issues, the Trustee’s Legal Companion (which I co-wrote) is a great resource (honest, it is). For a step-by-step guide to getting an EIN, go to Legal Consumer.com. You’ll find free inheritance law information (which I wrote, too) for all states except Louisiana–just enter your zipcode and look for the article entitled “How to Get a Tax ID number.”

Dear Liza: My mother recently died and I am the Trustee of her trust. She left everything to me and my brother, equally. I live far away from California, where she lived. My brother lives in her house. The bank told me that I need to get a tax identification number for my mother’s trust, is that true? Also, I’m worried that my brother is going to take her furniture and other things in the house before I have the chance to get there. I really don’t know where to start or how to get help. So, first things first. Yes, you DO need to get a tax identification number for your mother’s trust now that she’s died. That’s because now her trust is irrevocable, and, until you distribute the trust property to yourself and your brother, any income earned by the trust during this interim period needs to be reported under this new tax identification number, which is called an ‘EIN’ (employee identification number). You can apply for it online at this website. I’ve written about how to do this on Legal Consumer, which offers national probate information, organized by zip code–click on the article about how to get a tax id number.

Next, you, as Trustee, are responsible for gathering and protecting the trust’s assets until they are distributed to the beneficiaries. That’s the legal answer — but in real life, this can be tricky, especially when you are far away and you two are the only beneficiaries. I would advise seeing how cooperative your brother will be — after all, he benefits from having the house clean and sold for a good price. Ultimately, if he won’t cooperate and you can’t get him to move out, you should seek to have him removed by the local law enforcement authority, but I would hope it doesn’t come to that.

Finally, in terms of getting help, I’d advise you go find an estate planning attorney to advise you on your duties as Trustee. If there are trust assets other than that house, you can use trust money to pay for this advice, and it will be well worth it, since you have to do the job properly or risk personal liability. Nolo has a lawyer directory that should be helpful here.

Dear Liza: My wife and I are are planning to initiate an estate plan soon but we keep running into the issue of how to leave everything to our 28 year old son. He would be the only recipient as we have no other children, but he has no financial proficiency whatsoever and we have no expectations that he will ever achieve any. We we fairly certain that if we just leave anything to him it will be gone in less than five years. I would like your advice on how to handle this situation. So, the first thing that I want to say is that you’re not alone. I work with lots of people who struggle with some variety of this issue. The second thing that I want to say is that it sounds like you have a fairly clear idea of what could happen if you left your son his inheritance outright and free of trust, so trust that.

No pun intended, but actually leaving his money in trust is one option. In your estate plan, you could leave him his money in a trust, and appoint a trusted friend, or a bank, or a financial company to serve as Trustee. The money could be for his benefit, but it would not be invested or distributed by him. That kind of trust could last for his entire lifetime, and, since it would be held in an irrevocable trust, would not be available to his creditors or to his spouse (if he got married). If you hold it in a lifetime trust, though, you should name an institution as Trustee, since your son would likely outlive a trusted friend of your generation. Another option would be to direct your Trustee to purchase an annuity for your son, that would guarantee a level payout over his lifetime. This is a good option sometimes, but if your son had an emergency need, such as medical care, an annuity wouldn’t be flexible enough to address that need.

Liza: I live in California and my dad passed away recently. I am the executor of his living trust. His estate is around $500K. Do I need an attorney to handle his trust? Can I do it? Or can a paralegal take care of this? I do not know where to start. I am overwhelmed. Any guidance is greatly appreciated. I’m sorry about your Dad. Grief is just hard, even without the legal headaches. So, here’s a short answer: First, you don’t have to hire an attorney, but it might be helpful and you can use the trust’s assets to pay for that time. Many trust administration attorneys would meet with you for an hour or two to help you feel more oriented and less overwhelmed. Second, you might find a book that I co-wrote helpful (shameless self-promotion alert) since we wrote it, basically, for you: The Trustee’s Legal Companion is a step by step guide to administering a trust on your own. Third, the basic things you will need to do are send out a notice to all the heirs and beneficiaries, inventory the trust’s assets, pay all of the debts and taxes, and, when all that’s done, you can distribute the assets to the beneficiaries of the trust.

Dear Liza: My husband and I have one adult daughter – 20 years old. We are in our 60’s and want to set up a will or a trust to ensure that 100% of our property and investments goes to our daughter, and that she inherits the assets with the least amount of taxes/probate as possible. What’s better a Will or a Trust? I don’t know what state you live in, and that makes this a hard question to answer completely. Here’s why: the value of doing a living trust depends on the cost and inconvenience of probate in your state.

Both a Will and a trust can ensure that your property passes to your daughter. Both a Will and a trust can incorporate tax planning to minimize any estate taxes that might be due at the death of the second of you (though these days, you’d have to have more than $10 million before worrying about the estate tax, so let’s assume that this is not an issue for you). Really, the difference between which kind of an estate plan to create isn’t so much a “what” question; it’s really a “how” question, as in “how much” and “how long” will it take to settle your estates.

This is because a Will requires a probate proceeding before a distribution to your daughter, while a trust will allow you to bypass probate. This means that if you do a Will, and your estate exceeds the small estates threshold in your state, your daughter won’t inherit anything until the court issues an order for distribution, which is how a probate ends. If you do a trust, and the trust is properly funded at your death, holding title to your major assets, your daughter will be able to inherit those assets as soon as they’ve been identified, taxes and creditors have been paid, and all of the beneficiaries and heirs have been notified.

In states that have adopted the Uniform Probate Code, currently that is 18 states, click here for a list of these, probate has been streamlined and is relatively inexpensive. In states that have not adopted this code, like the one that I practice in, probate takes longer and costs far more than it costs to administer most living trusts. So, in order to sort out what’s the best estate plan for you, you need to find out the cost and delay in going through probate where you live. If you live in a state where probate is relatively easy and fast, you should be fine with just a Will. If you live in a state where probate is expensive and slow, a trust will be the better choice.

Dear Liza: I am the successor trustee of my parents trust. The have both passed and I was told before I disburse the assets I need to advertise a Notice to Creditors. How long and how many times do I need to advertise?

Since I don’t know which state you live in, I can only provide you with a very general answer. In most states, although not California, where I live and practice, if you are administering a trust, there’s no special creditor’s claim process that requires publication. Instead, creditors have a limited period of time in which to make a claim, and after that, it’s just too late. In California, again, that’s one year. In your state, it could be more, you’ll have to find out what the statute of limitations is after a death, you can try typing in “statute of limitations for claims against estate in _____” to your favorite web browser.

If there is a creditor’s claim process, that’s a way to accelerate the discovery and payment of creditors. Usually, that does involve publication that a person has died, and then there’s a specific number of days in which any creditors can make a claim against the trust’s assets (and this is less than the time allowed by that state’s statute of limitations). Once that claim is made, the Trustee has a certain number of days to either pay, or deny that claim. If a creditor fails to make a claim within the required time period, they are then barred, forever after, from making a claim. This is similar to how creditor’s claims are handled in probate — a notice is given, a time limit runs, there’s a process for paying or contesting a claim, and then a creditor is barred. This is all an attempt to have some finality after a death, so beneficiaries can inherit without the fear of lurking liabilities out there.

As a general matter, you do need to pay the creditors that you know about, so all of the bills that have come due since your parents have died should be paid before you distribute anything from the trust to other beneficiaries. Also, please make sure to pay the taxes first, before any other creditors. You should also know that secured debts, like a mortgage, do pass with the property that they are secured by. So, for example, if Sam inherits the house, and there’s a mortgage on that house, Sam is going to have to either pay that mortgage off, or get the lender to let him assume that mortgage himself (And that’s up to the lender…sometimes they will do it, sometimes they won’t. That depends on Sam and also on the terms of the mortgage.)

Finally, although you should, of course, pay outstanding credit card bills, you should know that the trust’s beneficiaries are NOT personally liable for such unsecured debts if the estate/trust has insufficient assets to pay those bills. I share this with you because bill collectors often neglect to make it clear that unsecured debts, like credit card debts, do not pass to the beneficiaries.

Dear Liza: My son and I own an S corporation. Can an S corp be put into a trust? If not how would an S corp be put into a trust? Yes! You can put your S corporation into your living trust by transferring your ownership of your shares to yourself, as Trustee of your living trust. As you know (but not all of my readers will), an S Corporation is a special kind of corporation, limited to 100 shareholders, in which the profits and losses of the corporation are passed through to the individual shareholders, to be reported on their individual returns.

Most of my clients who have S corporations are small business people and are the sole shareholders of their S corporations. If that’s the case with you, then you need to get your corporate binder out and follow the formal procedures to reissue those shares to yourself as Trustee. If you have a corporate attorney, then ask that person to help you make sure that you observe the required formalities to transfer the shares.

While you are alive, there’s not a problem with holding the S Corp shares as Trustee. That’s because during your lifetime, your living trust is what’s called a “grantor trust.” After your death, though, your trust isn’t a “grantor trust” any more. At that point, the shares can be held by the trust for only two years withhold jeopardizing the S Corporation status for the other shareholders. For many of my clients, this two year limit is not a problem, because the business won’t continue after the death of the owner.

If you want the trust to hold the shares longer than that, however, you need to have special S Corporation provisions added to your trust, so that the trust can be a permitted shareholder under the IRS’s regulations–only certain kinds of trusts are allowed to hold stock in S Corps. Click here for a good summary of these rules.

Dear Liza: My grandmother passed in May 2012 and left my mother and I as equal beneficiaries of her estate. The lawyer that we’ve been working with hasn’t been responsive to our questions or concerns. After eight months of working with him, it seems that not much has happened. My mother and I don’t feel that he is giving our case an appropriate amount of attention. Should we fire him? Probably. Certainly if you’re not happy with the care with which you have been treated you should at least have a candid discussion with your attorney about it. If you can’t come to a reasonable resolution of the issues, you absolutely have the right to seek other counsel. Your attorney is, after all, your attorney–and owes you a duty of loyatly and a duty to communicate adequately and keep you updated on the progress of the trust administration. If you do seek other counsel, you have the right to your client file as well. Good luck.

About Liza Weiman Hanks

Liza is an attorney who specializes in estate planning for families of all ages. She is a Certified Specialist in Estate Planning, Trust, and Probate Law by the State Bar of California Board of Legal Specialization. A graduate of Stanford Law School, she has also served as an instructor at the Santa Clara University Law School and practiced with the state of California and a prestigious Silicon Valley firm. Liza is also the author of Busy Family's Guide to Estate Planning: 10 Steps to Peace of Mind. She lives with her family in Campbell, California.